Blog > Understanding VA Mortgage Assumptions: Who Can Take Over Your VA Loan?
When it comes to VA mortgages, a unique feature that sets them apart is the ability for the loan to be assumed, meaning another party can take over the payments and responsibility of the mortgage. This can be an attractive option for buyers and sellers in various market conditions. However, not everyone is eligible to assume a VA mortgage, and the process is subject to specific guidelines set forth by the Department of Veterans Affairs. This article provides a comprehensive look at who can assume a VA mortgage, the process involved, and the implications for both the original and assuming borrowers.
Eligibility for Assuming a VA Mortgage
The ability to assume a loan depends on the mortgage agreement's terms. For VA loans closed after March 1, 1988, the assumer must be evaluated and approved by the lender or the VA and meet specific credit and income qualifications. Importantly, loans closed before this date are generally freely assumable, meaning they do not require the lender's approval. However, assuming a VA loan without involving the lender can carry significant risks, which we will address later.
Who, then, is eligible to assume a VA mortgage? Let's break down the criteria:
- Qualified Veterans with VA Loan Entitlement: Other veterans can assume a VA mortgage but must have sufficient entitlement to substitute for the seller's entitlement being used on the loan. The original borrower’s entitlement may not be restored until the new veteran has successfully assumed the loan and substituted their entitlement.
- Individuals Who Qualify for VA Loans: Non-veterans who meet the VA's credit and income standards may also assume the mortgage. If a non-veteran assumes the loan, the veteran’s entitlement will remain tied to the mortgage, potentially affecting their ability to obtain another VA loan.
- The Assumer's Agreement to Assume All Mortgage Obligations: Anyone who assumes the mortgage must agree to take over the loan's obligations, meaning they become responsible for the remaining payments and terms.
The Process of Assuming a VA Mortgage
The assumption process involves several steps and the cooperation of multiple parties. Here’s what typically happens:
- Notice to Lender: The seller must provide their lender with a notice of their intent to allow another party to assume the mortgage.
- Credit and Income Review: The assumer must undergo a credit and income review to meet VA and lender requirements.
- Assumption Agreement: If the assumer passes the credit and income review, an assumption agreement transfers all obligations to the assumer.
- Release of Liability: The seller should obtain a release of liability from the lender to ensure they are no longer responsible for the loan after the assumption.
- Processing Fee: The lender may charge a processing fee for the assumption transaction.
Risks and Considerations
While the assumption can be beneficial, it's with risks and considerations for both parties. Here's what you should keep in mind:
- For the Original Borrower (Seller): If a release of liability is not obtained, the seller could remain financially liable if the assumer defaults on the loan. Additionally, the seller’s VA loan entitlement is typically tied up in the mortgage until the loan is fully repaid or another veteran substitutes their entitlement.
- For the Assumer (Buyer): The assumer must be prepared to take over the loan under its existing terms, which may include a higher interest rate than currently available.
Conclusion
The ability to assume a VA mortgage is a flexible feature that can provide benefits under the right circumstances. It is a process that can offer a smooth homeownership transition from one party to another without securing a new mortgage. For sellers, it can make their property more attractive in a competitive market. For buyers, especially those who are veterans themselves, it can be an opportunity to step into a home loan with established equity.
Whether you are a veteran with a VA loan looking to sell or a prospective buyer considering the assumption of a VA mortgage, it is critical to consult with professionals who understand the intricacies of VA loans. In conjunction with a lender experienced in VA loan assumptions, a knowledgeable realtor can provide the guidance needed to navigate this process effectively. The assumption of a VA mortgage is a serious financial decision with long-term implications, and as such, it demands careful consideration and thorough understanding by all involved parties.